Convergence Assists ICT Market Growth

Research shows that China's information and communications technology (ICT) market is expected to enjoy a five-year boom thanks largely to an ever-increasing industry-wide convergence.

China's ICT market is forecast to grow at a CAGR (compound annual growth rate) of 14.2 per cent from 2005 to 2009, according to Beijing-based firm CCW Research.

"ICT spending in China is expected to see a new round of stable and high growth," said CCW Research General Manager Qu Xiaodong.

"The major driving forces will come mainly from the new products, new services and new demand created by the convergence between the traditional IT and telecoms sectors, and IT and traditional industries, as well as that between the Internet and traditional industries."

For example, 3G (third generation) mobile communications network applications will spur the growth of IT products and services, while the tie-up between the traditional industries and the Internet will create an even bigger boom for new markets such as e-commerce and online gaming, he explained.

"Convergence will be the buzzword in China's ICT market in the coming five years," Qu said.

The ICT market grew 13.2 per cent year-on-year in 2004 to reach 1.2956 trillion yuan (US$156 billion), CCW Research statistics indicate.

Hardware and software

The IT market grew 13.7 per cent year-on-year in 2004 and is forecast to register a CAGR of 17.1 per cent in the coming five years.

But most IT hardware manufacturers are suffering tough times as a result of a slowdown in the market, according to CCW research.

The hardware market grew 9.5 per cent to reach 195.8 billion yuan (US$23.6 billion) in 2004.

But desktop PC sales, which accounts for one-third of the total hardware market, registered a slight growth of 3.4 per cent.

"A great number of hardware firms had a difficult time surviving this intense competition," Qu said.

Price wars and wafer-thin profit margins will continue to plague the industry, and many foreign giants are adopting aggressive price strategies to take on domestic players.

And the market is increasingly assuming the characteristics of an oligopoly, especially since Lenovo's acquisition of IBM's PC-making business, CCW Research said.

Last year, the top five business desktop vendors held a combined 60.1 per cent market share, compared with 44.3 per cent in 2002.

The combined share owned by the top five consumer desktop makers increased to 61.2 per cent last year from 50.6 per cent in 2002.

For the top five notebook PC makers, the figure climbed to 67.6 per cent last year.

Government agencies, and the telecommunications, education, manufacturing and finance industries remained the largest hardware purchasers, accounting for 52.9 per cent of China's total hardware spending last year.

The software market continued surging last year, with a year-on-year growth of 30 per cent.

CCW Research said a huge amount potential in China's infant software industry remains to be tapped.

The volume of the software market stood at 68.2 billion yuan (US$8.22 billion) last year.

Software outsourcing and open-source software will be the brightest spots in the market this year.

China's software outsourcing market will grow 52 per cent in 2005 and perform better in its competition with India, the world's outsourcing powerhouse, CCW Research said.

Consumer electronics

The consumer electronics market grew 13.4 per cent year-on-year in 2004, hitting a record high.

The average prices of digital products, digital TVs and mobile phones dropped around 20 per cent, spurring consumer demand.

The digital product market grew three times faster than the entire consumer electronics market.

The sales volumes of major digital products such as digital cameras, digital video recorders, MP3 players and mobile storage products all more than doubled.

The consumer electronics market is forecast to record a CAGR of 10.9 per cent in the coming five years.

But the consumer electronics market is facing a crisis, CCW Research said.

Despite the high overall growth of the market, some specific markets are slowing or even sputtering.

For example, the PDA (personal digital assistant) market declined for the third consecutive year, while the growth of mobile phone and mobile storage products is also losing steam.

Both the TV and DVD player markets have been experiencing very slow growth for three years.

And manufacturers are also facing an industry-wide glut. Although many domestic makers have stepped up exports, oversupply has yet to be well addressed, the research firm said.

And domestic makers are increasingly frustrated with a lack of core technologies and poor profitability.

CCW Research forecasts that the consumer electronics market will witness a CAGR of 10.9 per cent over the coming five years.

Telecoms and Internet

The telecoms service market grew 12.1 per cent year-on-year in 2004.

Revenues generated from China's telecoms service market are forecast to register a CAGR of 10.7 per cent from 2005-09.

The build-out of the faster 3G (third generation) mobile communications networks in the coming years is expected to lead to a direct investment of 1.1 trillion yuan (US$132 billion).

The volume of the much-hyped infrastructure NGN (next generation network) market remained very small, standing at around US$80 million.

But the market's CAGR in 2005-09 will reach 50 per cent.

The Internet market moved back into the fast lane last year.

Revenues generated from the Internet sector, excluding e-commerce and Internet services, reached 12.5 billion yuan (US$1.51 billion) in 2004, up 51.3 per cent year-on-year.

The revenues are forecast to grow with a CAGR of 43.8 per cent in the coming five years to hit 76.8 billion yuan (US$9.26 billion)in 2009.

Mobile value-added services, gaming and advertising contributed more than two-thirds of the total revenues.

CCW Research estimated that person-to-person e-commerce transactions were 3-5 billion yuan (US$361 million-US$602 million) last year.

To better compete in the market, leading Internet companies will spark a wave of large-scale mergers and acquisitions among leading Internet companies this year.

Well-financed Internet companies, especially those listed in the stock markets, will play a major part in the M&As, CCW Research said.

(China Daily March 23, 2005)